Banking on hypocrisy

For almost a year, the big banks and the American Bankers Association have presented that choice to Congress. Lobbyists argue that meaningful consumer protection will jeopardize the safety and soundness of banks, telling lawmakers that they must decide between the two.

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While American families have made clear that they overwhelmingly support the reforms that a new consumer financial protection agency will produce — like clear, understandable terms and conditions for consumer credit products and accountability for the big banks — the lobbyists have made equally clear their plan to kill the agency.

ABA lobbyists now aggressively insist that separating consumer protection and safety and soundness functions would unravel bank stability. Yet just a few years ago, they heatedly argued the opposite — that the functions should be distinct.

In 2006, the ABA claimed to act on principle as it railed against an interagency guidance designed to exercise some modest control over subprime mortgages. It criticized the proposal for “combin[ing] safety and soundness guidance with consumer protection guidance, creating confusion that is best addressed by separating them.”

The ABA went on to argue that the “marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines.” And then: “ABA recommends that the safety and soundness provisions relating to underwriting and portfolio management be separated from the consumer protection provisions.”

Read that again: The ABA in 2006 said that policymakers should separate safety-and-soundness and consumer protection — exactly the opposite of its position today.

If there is a smoking gun in the battle over financial regulatory reform, the 2006 ABA memo is it.

In the memo, the ABA also argued that: 1) the proposed guidance “overstates the risk” of so-called nontraditional mortgages; 2) the nontraditional mortgages were not “inherently riskier” than traditional mortgages; and 3) the nontraditional mortgages “simply present different types of risks that may be well-managed by prudent lenders.”

So much for the ABA’s expertise on what increases the riskiness of banks.

The ABA’s efforts to block rules over subprime mortgages contributed directly to the economic crisis. They also offer irrefutable proof that bank lobbyists will say anything to block meaningful reform.

If saying down is up and up is down — or, for that matter, that the CFPA’s consolidation of seven bloated, ineffective bureaucracies into one streamlined agency will create more bureaucracy — then the ABA lobbyists are willing to say it.